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Trading & Pricing
Compounding
Returns earning returns — gains stay in the pot and grow with the next round
Definition
Reinvesting profits so the next return is calculated on the new (larger) base. Turns linear gains into exponential growth — but works the same in reverse for losses. A 50% drawdown needs +100% to break even, not +50%.
Context anchor
$1.000 at 1% daily compounded = $37.783 after 1 year (3.678%); at simple interest only $4.650 (365%)
Example
10% monthly compounded = 213% per year, not 120%
Also known as
compoundingcompound returnszinseszinscapitalizacióninteres compuesto